This story appears in the April 2026 issue of Utah Business. Subscribe.
In the beginning of “A Tale of Two Cities,” Charles Dickens famously opened by saying, “It was the best of times, it was the worst of times.” This is how I would describe the current state of early-stage venture capital. Let’s start with the challenging aspects so we can get to the exciting part — because despite challenges, this might be the best time in history to be in early-stage venture capital.
The worst of times
There are currently three trends that create headwinds for early-stage VCs. The first is that round sizes and valuations for seed-stage companies have risen steadily over the past six years. This phenomenon has been driven by an increase in total VC dollars in the ecosystem, but especially driven by mega funds, which have high valuation tolerance.
Secondly, graduation rates for startups moving to the next stage of funding have dropped precipitously. From 2017 to 2021, the average graduation rate for startups moving to the next stage of funding within two years was about 35%. From 2021 to 2023, that rate dropped to about 20%. Since the end of the zero-interest-rate period beginning in 2022, the bar has been raised to attract follow-on capital and there is a “flight to quality.” More venture capital dollars are being invested, but into fewer companies.
Third, IPOs and M&A remain muted. While 2025 showed promise in exit activity, especially in mergers and acquisitions, overall exit activity was quiet relative to historic levels in 2021.
The combination of increased entry prices for seed rounds, declining graduation rates and stagnant exit activity is not a good recipe.
The best of times
Despite these challenges, this might be the best time in history to be in early-stage venture capital. Since the launch of ChatGPT in November 2022, we have been experiencing one of the greatest technology tidal waves of our lifetime, and it has led to unprecedented growth for AI companies.
Model labs like OpenAI and Anthropic are growing at staggering rates. Anthropic has grown tenfold each of the past three years and added an estimated $4 billion in new annual recurring revenue between December 2025 and February 2026. OpenAI is forecasting to hit $30 billion in revenue in 2026 after launching ChatGPT less than four years ago. This is unprecedented. App-layer AI companies are also growing at unprecedented rates. Companies like Lovable and Cursor have hit $100 million in annual recurring revenue at record paces.
The total market size for enterprise software is estimated to be $200 billion. Now, AI has the potential to unlock the $5.5 trillion labor market. Vertical AI companies aren’t competing with software incumbents; they are competing with expensive service providers, business process outsourcing and high-turnover labor.
Despite the headwinds to early-stage venture capital, historical patterns suggest 2026-2027 may yield some of the most substantial gains the industry has ever seen. If past technology shifts like the internet era, cloud or mobile are a guide, Year 4 after a technology shift appears to align with a phase of significant opportunity for startups that are getting funded now.
The opinions expressed here belong solely to the author, subject to change at any time, and do not necessarily reflect the views of Peterson Partners.